The dynamics of the global semiconductor market are shifting, and South Korea’s growing dependence on China is indicative of broader trends within the tech industry. While South Korean giants such as Samsung Electronics and SK Hynix reported a substantial increase in sales within China during the first half of this year, this growth comes alongside an alarming reality: South Korea’s reliance on China for crucial semiconductor raw materials is intensifying.
According to a recent report from the Korea Eximbank Overseas Economic Research Institute, South Korea’s dependence on silicon, a vital component for semiconductor manufacturing, surged from 68.8% to 75.4% in 2022. This statistic not only highlights the increasing demand but also signifies a critical vulnerability in South Korea’s semiconductor supply chain.
Key raw materials, including germanium, gallium, and indium, have also demonstrated increased reliance. The report notes that demand for germanium alone has grown significantly, with dependence rising to 74.3%—a striking 17.4 percentage point increase. Meanwhile, reliance on gallium and indium jumped by 20.5 percentage points, resulting in a current dependence of 46.7%. This data points to a concerning trend where critical materials essential for semiconductor manufacturing are concentrated within the Chinese supply chain.
China’s dominion in this sector cannot be understated. The country produces a staggering 98% of the world’s gallium and 60% of its germanium, which are crucial for semiconductor production. This level of control raises significant questions about the stability and security of the global supply chain, particularly for countries like South Korea that depend heavily on these materials.
Moreover, this dependence becomes even more pronounced in light of recent export restrictions implemented by the Chinese government. Aimed at countering U.S. sanctions, China has imposed regulations on the export of these critical minerals. The timing of such restrictions could not be worse, as major South Korean manufacturers find themselves stuck in a network where their supply chain resilience is heavily tested by geopolitical tensions.
Despite these challenges, South Korean firms are making strategic moves to bolster their operations within China. For instance, Samsung’s NAND flash production facility in Xi’an has been instrumental in enhancing its capacity, increasing its share of the company’s total NAND output from 29% in 2021 to an expected 40% in 2023. This strategy not only aims to mitigate the risks associated with raw material dependence but also illustrates a commitment to maintaining a competitive edge in the fast-paced semiconductor industry.
Furthermore, reliance on rare earth elements is noteworthy for their role in semiconductor abrasives, alongside a moderate rise in dependence on tungsten, integral for semiconductor wiring. As South Korea pivots towards these materials amidst rising demand, the country’s technological framework becomes more intertwined with China’s market dynamics.
The global semiconductor landscape is characterized by rapid changes, driven by technological advancements and shifting geopolitical alliances. Companies seeking to succeed in this environment must navigate a landscape vulnerable to supply chain disruptions. For South Korea, the challenge lies not only in addressing its increasing dependency on China but also in diversifying its sources of critical materials to secure its position in the global semiconductor race.
As the need for semiconductors continues to grow across various industries—from automotive to artificial intelligence—Asia’s semiconductor landscape will be closely watched for any signs of change. The semiconductor supply chain has become a linchpin of global trade, making it imperative for companies and countries alike to devise strategies that enhance their security and sustainability in the face of uncertainty.
Strategies to mitigate these risks could include investing in domestic production capabilities, forming strategic partnerships with other nations, and increasing the recycling of raw materials. By diversifying supply sources and enhancing local production, South Korea may strengthen its position and reduce its vulnerability.
In summary, while South Korean semiconductor companies are experiencing short-term sales boosts in China, the long-term consequences of their growing dependence on the Chinese market could pose significant risks. Countermeasures will be necessary to ensure that South Korea not only remains a technological leader but also a resilient player in the global semiconductor ecosystem.